Price-Target Chop Job Is the Least of Virgin Galactic’s Problems
Founded by billionaire Richard Branson, New Mexico-headquartered Virgin Galactic (NYSE:SPCE) is on a mission to send people into space, even if they’re not professional astronauts. However, the investment community hasn’t opted to launch SPCE stock into orbit during the past half-year.
Four out of 12 Wall Street analysts covering Virgin Galactic rate the shares a “buy.” Thus, it’s fair to say that sentiment is running low among those financial experts.
Don’t get the wrong idea. I’m not suggesting avoiding SPCE stock solely because the share price is low or because analysts are largely bearish on the stock.
Yet, just like in a court of law, the pieces of evidence can add up to a strong argument. Most of all, it’s disconcerting that Virgin Galactic’s most recent press releases involve scant news involving actual space flight and instead focus on debt accumulation.
A Closer Look at SPCE Stock
Oftentimes, it’s not a good sign when a special purpose acquisition company (SPAC) stock falls below the $10 level. That’s because these stocks typically start out at $10 and long-term investors generally hope to keep them above that price point.
Back in October of 2019, Virgin Galactic went public as a result of the company’s SPAC merger with shell company Social Capital Hedosophia. This event was much-hyped for a number of reasons.
First, famous SPAC-ster Chamath Palihapitiya was the founder and chief executive officer of Social Capital Hedosophia. Second, wild man Branson was Virgin Galactic’s founder. Third, this was to be the first publicly traded commercial human space-flight company. And indeed, all of this was enough to launch SPCE stock to the $60 resistance level.
As it turned out, the Virgin Galactic share price reached $60 in February of 2021 and into the 50s in June before declining sharply. Fast-forward to now, and the stock is trading at $8.68. That’s below the crucial $10 — we’ve come full circle here, and not in a good way.
Re-Rated, and Just Plain Hated
The contrarian in me typically wants to root for downtrodden, disliked stocks. Yet, sometimes a stock is cheap and unloved for good reasons.
Granted, BofA Securities analyst Ronald Epstein’s recent price-target reduction on Virgin Galactic shares was quite harsh. Reportedly, Epstein cut his target on SPCE stock in half, from $20 to $10. Moreover, the analyst maintained his “sell” rating on the stock. However, it’s hard to blame Epstein when we examine the circumstances.
Keep in mind that SPCE stock tumbled below $10. Therefore, maintaining a $20 or even a $15 price target would require a strongly bullish outlook. It’s possible, additionally, that Epstein is concerned about Virgin Galactic’s lack of encouraging news developments. So, let’s delve into that topic now.
Desperately Seeking Good News
As I recounted earlier, Virgin Galactic had a big splash and plenty of fanfare upon its stock-market debut. However, a lack of positive, impactful recent press releases seems to have weighed on investor sentiment regarding Virgin Galactic.
On the financial front, there’s nothing to celebrate, really. Virgin Galactic’s most recently released quarterly fiscal reports shows that the company sustained a third-quarter 2021 net loss of $48 million, along with an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of -$68 million.
In terms of actual space flight, the news hasn’t exactly been galvanizing. As you may recall, in Oct. 2021, Virgin Galactic disclosed that its commercial service is expected to commence in 2022’s fourth quarter — a delay that discouraged some shareholders, no doubt.
The only other item to report is Virgin Galactic’s issuance of $425 million worth of convertible senior notes. The 2.5% annual interest rate on those notes isn’t exorbitant by any means. Still, it’s not necessarily great news that Virgin Galactic, an already unprofitable company, is now taking on a massive debt load.
The Bottom Line on SPCE Stock
Virgin Galactic’s early investors wanted to see lots of high-profile successful flights. So far, they’ve been disappointed and this is evident in the price action of SPCE stock.
It’s a shame, really. The promise of commercial human space flight led some investors to pour their hard-earned capital into Virgin Galactic shares.
Now, SPCE has fallen below the key $10 level and it’s hard to envision an imminent turnaround. The investors can only hope for a positive news development from Virgin Galactic — and the sooner, the better.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.
